A man walks out of a 7-Eleven convenience store along a street in central Tokyo on Sept. 9.RICHARD A. BROOKS/AFP/Getty Images
If Alimentation Couche-Tard Inc. ATD-T had launched its historic bid for 7-Eleven just one year earlier or one year later, experts say, the Canadian convenience-store giant would likely have been quickly rebuffed by Japan’s notoriously protectionist foreign-takeover regime.
Now, with its pursuit of Seven & i Holdings Co. Ltd. SVNDY representing the first test of new merger and acquisition guidelines that Tokyo issued late last year, Japanese merger experts believe the Laval, Que.-based Circle K owner has a fighting chance.
The two sides remain far apart. Seven & i rejected the initial US$39-billion offer Couche-Tard made in August and has thus far refused Canadian entreaties to continue talks. But lawyer Tomoko Nakajima, who is not directly involved in the discussions, believes the Japanese government will likely have to approve any deal that may ultimately emerge.
“The Japanese government is trying to encourage foreign investment into Japan, so if they are going to say no to this, then that really discourages people from coming to invest in Japan,” Ms. Nakajima, a partner and head of Japan M&A for global business law firm Freshfields Bruckhaus Deringer LLP, said in an interview from Tokyo. “It is going to be really difficult for the Japanese government to say no to this transaction. I don’t think the Japanese government can say no to this transaction, to be honest.”
Before the Japanese Ministry of Economy, Trade and Industry (METI) updated its corporate-takeover guidelines last year – its first revision since 2005 – acquisition offers “were often ignored,” Ms. Nakajima said.
“Whether it was an international investor or even a Japanese investor, management often would not even really seriously consider the offer or even bring it to the board for discussion,” she said. “Now that approach has been clearly denied by the METI.”
The new guidelines require offers to be considered by a board of directors, including at least one independent, non-executive director, rather than being ignored. They also place limits on the rationale companies can use for rejecting offers. For example, offers can no longer be turned down over concerns related to employee job security.
Unsolicited takeover deals in Japan are very rare. Between 2012 and 2021, just 3.8 per cent of Japanese corporate takeovers involved companies that were not formally up for sale, according to METI data cited by the Asia Business Law Journal. In the United States, by comparison, 16.6 per cent of corporate-takeover deals over the same period started as unsolicited offers, the data showed.
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Noah Carr, another M&A lawyer in Freshfields’s Tokyo office who works with Ms. Nakajima, said the goal of the new guidelines was to address what he said was a long-standing “weak spot” in the Japanese market.
“This market has a tendency to prop up companies that have no prospects and are not dynamic because you couldn’t do unsolicited deals and foreign takeovers were so hard,” Mr. Carr said in an interview. “There are a lot of constituents in Japan that really want a foreign, unsolicited bid to succeed. People want to remove that label that Japanese protectionism would never let that happen.”
Many of those people, however, would have preferred that the first bid to succeed under the new regime would have been for “some company you’ve never heard of that made power tools,” Mr. Carr said, and not for a nationally beloved convenience-store chain.
“If you have not spent a lot of time here, it is hard to understand the role this company plays in society,” Mr. Carr said. “I pay my taxes at 7-Eleven. When I take a trip, I don’t take my suitcase to the airport, I take my suitcase to 7-Eleven down the street and then it shows up at the airport.
“This company is deeply involved in Japanese life. So many parts of life touch on this institution.”
Japan is by far 7-Eleven’s largest market, with 21,618 locations in the country, representing roughly one-quarter of all its stores globally. There are nearly 3,000 7-Eleven stores in Tokyo alone, with many Japanese locations doubling as emergency shelters in case of natural disasters.
“It would be extremely easy for Japan to block this deal if it were the third unsolicited foreign takeover under the new guidelines and the first two went through,” Mr. Carr said. “This deal would have zero chance in my opinion if those were the facts, but the fact that this is the first one is what gives them a real chance.”
Japan is also unlikely to block any deal between Couche-Tard and Seven & i on national-security grounds. Seven & i was recently classified as “core” to Japanese national security, but a senior Japanese Finance Ministry official told Reuters earlier this month that companies cannot use that designation as a tool to thwart foreign takeovers.
Regardless of Seven & i’s classification, both Ms. Nakajima and Mr. Carr said any sale to Couche-Tard would be subject to review under Japan’s Foreign Exchange and Foreign Trade Act. But Japan has only ever used a FEFTA review to block one deal before. That happened in 2008, when the London-based Children’s Investment Fund attempted to acquire a larger stake in Electric Power Development Co., or J-Power.
Seven & i still has one powerful defensive weapon the new guidelines allow the company to wield freely: price. Last week, after Couche-Tard urged Seven & i to continue talks, the Japanese company specifically cited Couche-Tard’s US$14.86-a-share offer price as being insufficient to justify the launch of formal discussions about a potential deal.
“The price at which the 7-Eleven board says is sufficient, that is the big sword that they still have,” Mr. Carr said. “There is no real limit to their ability to talk about shareholders and how they might have a long-term plan that is going to value the company at 20 trillion yen and just hold that line. Even in the U.S. people do that.”
“That might be how they deal with this,” he said.